Buying a business is a major decision. You will devote your time, money, and energy to finding, purchasing, and operating a business. You have decided now is the right time to buy and you want the very best professional guidance you can get. This is when working in tandem with a professional business broker can make the difference between just buying a business and buying the right business for you at the very best price and terms.
Below are the most common questions asked by buyers. The responses are based on both experience and knowledge. If you have any questions we have not covered, please do not hesitate to contact us.
What Can Business Brokers Do – And, What They Cannot Do?
Business brokers are the professionals who facilitate the successful purchase of a business. It is important you understand just what a professional business broker can do as well as what they cannot do. As your business broker, we can help you decide which businesses match your skills and experience and which businesses do not. We can help identify a fair price for a business and how to structure the acquisition so it makes sense for everyone, i.e., you and the seller. We can help find the right business for you to buy and work with you and the seller step-by-step until the transaction is successfully closed. We will also help the seller in all the details of the business selling process.
A business broker is not; however, a magician who can find the perfect business. All businesses have a unique set of challenges. You should understand a business transition will be difficult. You may have issues with the economy, employees, suppliers, new competitors, and at times the seller. You may not initially achieve the results the prior owner achieved. It is important to understand the amount of the down payment, along with the source and terms of financing, can greatly influence not only the ultimate purchase price but also the success of the acquisition itself.
How Long Does It Take To Find A Business?
On average, it generally takes up to six months to find a solid, profitable business to buy in an industry you can excel in. Keep in mind that an average is just that. Timing may be dependent upon the industries and locations you prefer or specific revenue and owner benefit targets you require. The sooner we have all the information needed to begin the search process, the shorter the time period should be. It is also important to understand what your personal strengths and weaknesses are from the start. Some buyers, operating under the premise they can run any business, often buy the wrong business. This theory often “backfires” because, without relevant experience, buyers fail to move down the learning curve fast enough to compete against a competent, well-skilled marketplace.
It has been shown the amount of the down payment may be the key ingredient to a quick sale. The higher the down payment, generally 50 percent of the asking price or more, the shorter the time to a successful acquisition. A reasonable down payment also tells a potential seller the buyer has confidence in their ability to operate the business and make any loan payments.
What Paperwork Is Required To Buy A Business?
To buy a business, you will likely need to complete several documents. These documents include:
- Buyer profile
- Non-disclosure agreement
- Proof of financial viability
- Summary of experience
A buyer profile is a one-page summary listing your name, contact information, industry and location preferences, owner benefit required, cash available for a down payment, timing, key decision-makers, and other critical information about you. A broker may ask you to complete the buyer profile, or they may complete it for you over the phone or in a face-to-face meeting.
A non-disclosure agreement (NDA) protects the seller and broker for a specified period of time. These protections include:
- Assures you work through the broker and not directly with the seller. Respect the fact the seller hired the broker to communicate with and to qualify all prospective buyers.
- Informs the buyer all documents containing non-public information are considered confidential and the buyer is responsible for maintaining this confidentiality.
- Advises the buyer to seek the advice of their own attorney and/or CPA when purchasing a business as the broker is communicating information on behalf of the seller and cannot guarantee the accuracy of this information.
- Informs the buyer should they consummate a deal with the seller and/or landlord without the broker's involvement within two years of signing the NDA, they will be liable for damages including commissions due to the broker.
- Warrants the buyer is acting on their own behalf and not as an agent of a third-party, government agency, or competitor.
A signed NDA allows you to receive a business summary, also referred to Business Listing Information sheet (BLI). A signed NDA does not permit you to receive the name and/or address of the business.
Proof of financial viability is a critical step. Experience has shown less than 25% of all buyers have the necessary liquidity and/or available funding to purchase the business they are inquiring about. Sellers have little patience sharing time and confidential information with buyers who do not have the financial means to purchase and operate their business. Most sellers require their broker to have prospective buyers verify their financial viability. This can be accomplished by one of three methods:
- Complete and sign a personal financial statement.
- Producing a letter from a CPA or other fiduciary stating you have a specified amount of liquid capital and/or access to a specified amount of funding or they have looked at the terms and conditions of the sale and assure you are qualified.
- Statements from a bank, retirement, or other savings account.
A summary of experience can be provided to a broker in written format, e.g., resume, work history, or other similar documents, or verbally during a phone call or face-to-face meeting. Most sellers want to be reassured by the broker the buyer has the experience and skills to successfully operate the business. The more you share about your skills and experience, the better the broker can represent your interests to the seller.
Only after the broker has accumulated the necessary paperwork from the buyer and believes they are qualified to purchase and operate the business, will the broker and seller feel comfortable in releasing the name and address of the business.
What Happens Once I Find A Business I Want To Buy?
When you become interested in buying a specific business, we will help in the preparation of an offer. This offer may have one or more contingencies. Common contingencies usually include financing and a detailed review of the seller's financial records. They may also include a review of the seller's lease arrangements, franchise agreement (if applicable), and other pertinent details of the business. Your offer will be presented to the seller for their consideration within 24-hours of receipt. The seller may accept the terms of the offer or they may make a counter-proposal. You should understand; however, if the seller does not accept your proposal, you may withdraw it at any time. We will submit all written offers to sellers for consideration. Verbal offers will not be presented.
When you and the seller are in agreement, we will work with both of you to satisfy and remove the contingencies in the offer. If you require financing, we can assist you with applications for traditional financing as well as helping to negotiate terms and conditions of seller financing when available. It is important you are prepared to work quickly and efficiently in this process. It is highly recommended you bring in outside advisors to help review the information. When all the contingencies have been met, final papers will be drawn and signed. Once the closing has been completed, you will take possession of the business. In most cases, the seller will provide transition assistance free of charge for a set period of time. If additional assistance is needed, contracting the seller for a set period of time at an agreed-upon amount is often available. As your business broker, we will work with you throughout the entire sales process.
If you have any questions, contact us for a complimentary, confidential consultation.